My question: If my business pays over $600/year to an S-Corp, do I
have to send them a 1099-misc or not? How about LLC/LLP?
By way of known background: If my business pays an individual more
than $600/year, I have to send them a 1099-misc. If I pay an INC
corporation, I usually don't have to send a 1099-misc.
What about S-Corps and LLC/LLP?
Your answer must provide a definitive source that specifically
addresses the S-Corp issue. An answer that simply talks about
"corporations" will not tell me anything new.
Thanks.

dcp1- --
First, our usual disclaimer -- Google Answers researchers are not
authorized to give legal or accounting advice, so this answer in
intended to be informational only.
According to an accounting firm, a lawyer and Bankers Online, the
answer is that you must sent a 1099-MISC to the LLC or LLP in your
example, but not to the S Corporation.
First, from the accounting firm:
"You do not need to report payments made to corporations for services,
except for payments to corporations that provide legal or medical
services. You may treat a payee as a corporation if the payee's name
contains an expression of corporate status, such as 'Corporation',
'Corp.', 'Incorporated' or Inc., but not 'Company', 'Ltd.' or 'LLC'."
Sattell, Johnson and Appel: Basic Form 1099-MISC Reporting for Businesses
http://www.sattell.com/tips/1099.html
Now, from the lawyer:
"In addition, firms that hire LLCs and pay them more than $600 per
year must file Form 1099-MISC with the IRS to report the amount of the
payment. (This requirement doesn't apply if the LLC has opted to be
taxed as a corporation.) Generally speaking, hiring firms do not have
to file Form 1099-MISC when they hire a corporation. For this reason,
some businesses prefer to hire corporations instead of LLCs because
they can avoid filing the 1099-MISC form altogether. Firms don't like
filing the forms because they often lead to audits."
Nolo: Law For All:Working for Yourself: Law & Taxes for Independent
Contractors, Freelancers & Consultants, by Attorney Stephen Fishman
http://www.nolo.com/lawstore/products/product.cfm/ObjectID/68464A84-FD9B-45A8-8F5A576D33A0DECA/sampleChapter/5
And, finally, this from the bankers:
"1099-MISC Reporting - Entities Only?
"Question: For 1099MISC reporting, was the term "corporation" for
reporting payments made to Appraisers, Title Companies etc. meant to
mean an "entity" such as a partnership, LLC etc.? If so, we would not
be reporting payments made to any "entities" unless the entity is an
attorney such as Smith, Smith, Smith & Smith Attorneys Professional
Corporation?
"Answer by John Burnett: When dealing with IRS regulations, read them
precisely. If the regulation carves out an exception for corporations,
you should not assume that it applies to anything other than
corporations. In other words, issue a 1099 if the entity you paid is
anything other than a corporation, and issue a 1099 even to
corporations if the payment is legal fees or rents."
Banker Online: The Gurus Speak about Interest Reporting
http://www.bankersonline.com/operations/guru_reportingwisdom.pdf
Additional Information:
This information is consistent with the IRS instructions for Form
1099-MISC. Those instructions use specific language to say that
payments to "corporations" (and, implicitly, all corporations --
passthrough entities or not) are not required to be reported (with one
narrow irrelevant exception):
"Some payments are not required to be reported on Form 1099-MISC,
although they may be taxable to the recipient. Payments for which a
Form 1099-MISC is not
required include:
Generally, payments to a corporation . . . ."
I am confident that this information will be useful to you, If
anything is unclear, please ask for clarification before rating the
answer.
markj-ga

dcp10-
I neglected to describe my search strategy in my answer. I found the
information after running a variety of Google searches, the most
fruitful of which were these:
1099-misc llc "s corporation"
://www.google.com/search?num=30&hl=en&lr=&safe=off&q=1099-misc+llc+%22s+corporation%22
1099-misc llc
://www.google.com/search?num=30&hl=en&lr=&safe=off&q=1099-misc+llc+&btnG=Search
markj-ga

Request for Answer Clarification by
dcp10-ga
on
05 Jan 2005 12:45 PST

Markj-
Thanks for taking time to look at this. I believe you have answered
the question as regards LLC/LLP. However, I've read your answer twice
and am unclear where you have answered this specific criterion I
listed:
<<Your answer must provide a definitive source that specifically
addresses the S-Corp issue. An answer that simply talks about
"corporations" will not tell me anything new.>>
You have assumed that what you found about "corporations" applies to
S-Corps, and you have said this is "consistent" with IRS instructions.
I agree it seems to be "consistent" and I assume your assumption is
correct; but this is what I assumed _before_ I posted my question. I
have long ago learned to be leery of simply assuming that assumptions
are correct in these matters.
Can you help me locate convincing evidence that our assumption is correct?
Thanks.

dcpl10 --
Thanks for your posting.
I apologize for not focusing initially on your explicit instruction to
find some information *specifically* referring to S Corporations.
That additional information has been very difficult to find because, I
think, the sweeping conclusion of many sources that payments to
corporations are not subject to third party-reporting using 1099-MISC
(including the IRS instructions for the form) makes unnecessary a
specific mention of S corporations.
And, to me, the inclusion of a specified exception to the rule in the
IRS instructions (for incorporated law firms) strengthens a conclusion
that other exceptions were not contemplated by the agency.
However, after lots of searching (I took this as a personal
challenge), I found one very authoritative source that payments to
S-corporations are not subject to third-party reporting to the IRS.
The statement was made by Professor Joseph Bankman, Ralph M. Parsons
Professor of Law and Business. Stanford Law School Stanford, CA at a
Senate Finance Committe hearing on July 21, 2004.
Here's what he said:
"My first suggestion is to increase the reach of third-party
reporting. Taxpayers who receive income subject to third-party
reporting, from wages, dividends or the like, accurately report this
income on their tax returns. It is income that is not subject to
third-party reporting, such as cash and checks received by sole
proprietors, that is the source of most of the tax gap. It is
obviously impossible to extend third-party reporting to all
transactions. But the current reporting rules are particularly
arbitrary and easy to avoid. (To take but one example, payments to
individuals and partnerships are subject to third-party reporting, but
payments to S Corporations are not.) I?ve written elsewhere some of
the ways these rules could be tightened up, and better enforced. See
Bankman, Tax Enforcement: Tax Shelters, the Cash Economy, and
Compliance Costs, 2004 TNT 134-43."
Senate Finance Committee: Hearings: Bridging the Tax Gap: Testimony of
Prof. Joseph Brinkman (July 21, 2004)
http://finance.senate.gov/hearings/testimony/2004test/072104jbtest.pdf
If you interesting in perusing other testimony presented at this
hearing, here is a useful link:
Senate Finance Committee: Witness Statements
http://finance.senate.gov/sitepages/hearing072104.htm
Besides this one very specific reference to S Corporations, I found
other reputable (non-IRS) references to the proposition that payments
to *only" unincorporated entities are required to be reported on Form
1099-MISC. However, I recognize that even these additional sources
would likely not give you sufficient comfort, even though my research
has not uncovered any information that contradicts them.
I should note however, that one of the quotes I provided in my
original answer that discussed the need for payments to LLCs, but not
corporations, to be reported on Form 1099-MISC was made in the context
of explaining the drawbacks of LLCs compared to S Corporations. Here
is another link to this discussion by attorney Stephen Fishman. You
may want to read paragraph 4(b)("Disadvantages of LLCs") in its
entirety:
Nolo: Law For All:Working for Yourself: Law & Taxes for Independent
Contractors, Freelancers & Consultants, by Attorney Stephen Fishman
(See paragraph on
http://www.nolo.com/lawstore/products/product.cfm/ObjectID/68464A84-FD9B-45A8-8F5A576D33A0DECA/sampleChapter/5
Under the circumstances, if the Senate testimony I have provided above
does not give you sufficient additional confidence in the state of the
law, I would appreciate it if you would refrain from rating this
answer and closing the question until I ask the Google Answers editors
to remove my answer.
Supplemental Search Strategy:
I used a wide variety of Google searches using various combinations of
the terms "llc," "s corporation," "independent contractor,"
"1099-misc" and many others. The simple, focused search that led to
the Senate testimony was this one:
"payments to s corporations"
://www.google.com/search?num=30&hl=en&lr=&safe=off&q=%22payments+to+s+corporations%22++
Let me close as I began the answer by reiterating that it is not
intended as legal or accounting advice, but only as information that
is helpful to you in forming your own conclusions.
markj-ga

dcp10-ga
rated this answer:
and gave an additional tip of:
$5.00

Markj-
Thanks; the professor from Palo Alto under oath convinces me. I know
this wasn't easy as I'd tried the search myself before posting it
(hence my specific criterion.)
I've inlcuded a large % tip, though I realize the $$ amound is not
significant compared to your effort.
You have my thanks, and respect for you researching prowess.
Best regards,
dcp1

Comments

Subject:
Re: Do I sent S-Corp a 1099-misc?
From:
markj-ga
on
06 Jan 2005 12:42 PST

dcp10 --
Thanks for the kind words and the nice tip.
markj-ga

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